UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Rel. No. 16586 / June 8, 2000
Accounting and Auditing Enforcement Release No. 1269
Securities and Exchange Commission Files Manipulation and
Financial Fraud Action
Against Former Officers of Firstmark
SECURITIES AND EXCHANGE COMMISSION V. VIGUE ET AL. (United States District Court for the District of Maine, C.A. No. 00113-B)
The Securities and Exchange Commission announced today that it filed a civil fraud action against Waterville, Maine residents James F. Vigue, Ivy L. Gilbert and William Goodhue. The Complaint, filed in federal court in Bangor, Maine, alleges that Vigue, the former CEO of Firstmark, carried out a manipulation scheme to support the price of Firstmark stock at $4 per share. According to the Complaint, from 1994 until early 1997, Vigue and Gilbert engaged in a number of manipulative techniques, including: falsifying Firstmark's financial statements by causing Firstmark to recognize income and delay recognizing losses contrary to generally accepted accounting principles ("GAAP"); discouraging or preventing investors from selling their Firstmark stock; using nominee accounts to purchase Firstmark stock; and effecting trades where no real change in ownership took place ("wash sales"). The Complaint also alleges that Vigue made purchases near the end of the trading day in order to make Firstmark's stock price go up (known as "marking the close") and sold stock to a customer simply to reclaim it later at a small profit to the customer.
The Complaint alleges that William Goodhue, a broker who worked for Vigue, assisted Vigue by making many of the manipulative trades and by preventing customers from selling the stock. Specifically, the Complaint alleges that Goodhue maintained a waiting list of shareholders who wanted to sell their stock but were not allowed to until Vigue matched their sell orders with buy orders from other shareholders (a practice known as "matched trades"). The Complaint alleges that Vigue and Gilbert concealed the manipulation scheme by misrepresenting account activity and falsifying client reports.
From December 1994 through March 1996, Firstmark's assets were overstated by ten to eighteen percent. For the fiscal year ended June 30, 1995, Firstmark reported net income before taxes of $771,895 when it should have reported a loss of $54,886. When Vigue's scheme collapsed, in early 1997, the price of Firstmark stock declined from approximately $4 to less than $1. On April 27, 1999, Firstmark stock was delisted from the NASDAQ SmallCap market. Many of Firstmark's approximately 650 shareholders are residents of the Waterville, Maine area.
The Complaint alleges that Vigue defrauded certain trust clients by failing to disclose that he and/or Gilbert were receiving commissions on securities he sold to the trusts.
The Commission's Complaint alleges that Vigue violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940: Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Complaint also alleges that Vigue violated the margin requirements set forth in Section 7(d) of the Exchange Act and Regulation T, and failed to implement and maintain the company's internal controls in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 enacted pursuant to the Exchange Act. The Complaint further alleges that, as the control person of Firstmark's brokerage firm, Vigue is liable under Section 20 of the Exchange Act for the subsidiary's violations of the antifraud provisions as set forth in Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-3 and 15c1-2 thereunder. Finally, the Complaint alleges that Vigue aided and abetted violations by Firstmark's investment adviser subsidiary of Sections 206(1) and 206(2) of the Advisers Act.
The Complaint alleges that Gilbert violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and that she aided and abetted Vigue's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Complaint alleges that Goodhue violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and that he aided and abetted Vigue's violations of Sections 206(1) and 206(2) of the Advisers Act. The Complaint alleges in the alternative that Goodhue aided and abetted Vigue's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The Commission seeks the entry of civil injunctions against all of the defendants prohibiting future violations of the securities laws as well as civil monetary penalties. As to Vigue, the Commission seeks disgorgement of the ill-gotten gains he received in the form of commissions, plus prejudgment interest, and an prohibiting him from serving as an officer or director of a public company.
In related matters, Firstmark settled the financial fraud action against it. The company agreed to a Commission Order requiring it to cease and desist from future violations of the antifraud, reporting and books and records provisions of the federal securities laws. In addition, the Commission instituted an action against Firstmark's auditor, Scott E. Edwards, for engaging in improper professional conduct with respect to the audit of Firstmark's 1995 fiscal year financial statements.
The Commission wishes to thank the State of Maine Securities Division for its assistance with this matter.http://www.sec.gov/enforce/litigrel/lr16586.htm